When it comes to closing on your home, lenders are required to give you an estimate of how much your closing costs will be. Typically, home buyers will pay 2 to 6 percent of the purchase price of the home in closing costs and since closing costs are third party fees, they can be different from your estimate.
If you aren’t prepared, these costs can end up being more than you can handle. Depending on your situation, there are many options available to help you get closing cost assistance.
Negotiate Seller Concessions
Most of the time, the seller will not get a full priced offer on their house. By working with your real estate agent, you can negotiate paying full price for the home in exchange for the seller paying your closing costs. In the end, the seller would generally lose more money by lowering the price on the home than funding the buyer’s closing costs.
Consider Forgivable Loans
Forgivable loans are essentially grants that you can use to fund your closing costs. However, they come with a set of rules and restrictions that must be followed. As long as you follow the terms of the contract, like making all payments on time, you will not end up having to pay the closing costs fee and the loan will be “forgiven”.
If the terms are not met, you will have to fully pay back what you borrowed, plus interest. Forgivable loans can sometimes be more trouble than they are worth, so discuss them with your lender first.
Research “No-Closing Costs” Mortgages
Some people may opt for a “no-closing costs” mortgage, which basically eliminates the closing costs. However, it’s only a short-term fix. The closing costs will get put into the total mortgage, increasing your loan balance and your monthly payment. Research this option carefully to make sure you can afford it.
Look at First-Time Homebuyer Programs
There are many first-time homebuyer assistance programs that can help you with closing costs. If you haven’t owned a permanent residence in three years you are considered a first-time homebuyer—even if you have owned a home before.
The Missouri Housing Development Commission (MHDC) offers programs that will help you with closing costs:
- FHA loans
- VA loans
- USDA loans
- VA loans
MHDC also offers Cash Assistance Programs (CAP) where qualified first time homebuyers are eligible to receive a grant of 4.5 percent of the loan to be used for down payment and closing costs.
Take Money Out of Your IRA
Taking money out of your traditional or Roth IRA is another option for first time homeowners. Every first time homebuyer is eligible to take $10,000 out of these accounts without paying the 10% penalty for early withdrawal. Remember to use these funds within 120 days of taking it out or else it becomes subject to the penalty.
Receive Gifts from Relatives
If you’re lucky, you could receive the money for the closing costs in the form of a gift. Legally, it can only come from a relative and there needs to be documentation signed noting that it is a gift and the money does not need to be paid back.
Though there are many resources available to help you pay for your closing costs, they are often only a short-term fix. Buying a home is a huge endeavor and it’s very important to be financially sound in order to be able to afford the costs associated with it.